Janus Probe Widening

Posted: March 4, 2004

Janus Capital Group revealed Wednesday that the nationwide inquiry into the mutual funds industry now involves the Department of Justice and multiple grand juries in other words, criminal investigations.

Janus disclosed in an update to the prospectus for the Janus Balanced Fund that the company’s funds and subsidiaries “have received subpoenas and formal or informal document requests” from a number of legal and regulatory agencies, including “one or more U.S. attorney offices or federal grand juries.”

The laundry list of regulators, most already disclosed, also includes attorneys general in New York, Colorado and West Virginia; the Securities and Exchange Commission, the National Association of Securities Dealers Inc., the Colorado Securities Commissioner and the Florida Department of Financial Services.

Grand juries are convened to determine if accusations warrant criminal indictments. David Marder, an attorney at Robins Kaplan Miller & Ciresi in Boston, said requests from grand juries may mean Janus has information about another party being investigated. Marder is a former assistant head of the SEC’s office in Boston.

Janus spokesman Blair Johnson said “it’s important to keep in mind these requests are not exclusive to Janus – much of the industry is being reviewed. Our funds are distributed throughout the country, so it’s natural we’d receive requests for information from a variety of sources.”

Janus and the mutual fund industry have been on the hot seat since September, when New York Attorney General Eliot Spitzer said a New York hedge fund engaged in improper trading with four mutual fund companies, including Janus. The issue was market timing, in which Spitzer alleged the fund families knowingly allowed the hedge fund to trade quickly to exploit stale prices, thereby siphoning profits from long-term investors.

Since then, the scandal has spread to multiple fund companies, resulting in resignations, civil actions and regulatory settlements.

Janus has not been sued or charged by any regulator or government entity. Janus moved quickly to announce a $31.5 million restitution plan for its damaged fundholders and is in settlement talks with Colorado regulators.

Instead, it was Denver’s Invesco Funds Group that ended up in the cross hairs, getting sued by Spitzer, the SEC and Colorado Attorney General Ken Salazar in early December. Initially defiant, claiming no fundholders were damaged by market timing, Invesco has since adopted a more conciliatory approach, announcing in mid-January a restitution plan and settlement talks.

The expenses are piling up. Invesco took a $41 million charge that will cover legal bills through mid- 2004, but does not include restitution or settlement costs. Janus set aside a total of $72 million in the third and fourth quarters of 2003, which covers the $31.5 million restitution plus other expenses.

Florida and West Virginia said their inquiries are widespread. The Florida Department of Financial Services requested information from Janus in January “as it relates to market timing and late trading,” spokeswoman Tami Torres said. The department also sought information from other fund companies, which Torres declined to identify.

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